I. Introduction -- The Need for A Fair Appeals Process

Mr. Chairman, thank you for giving me the opportunity to address this Committee again on a
subject of significant importance to the Administration and the American people. As I
emphasized when I spoke with you in March, improving the quality of the health care delivered
to Americans is one of the President's top priorities. Ensuring that all health plan members have
a mechanism to resolve disputes with their health plans is critical to that goal. We appreciate the
attention that you, the Ranking member, and other Committee members are giving this issue.

The American health care system is undergoing a dramatic transformation. Health plans of all
types have become more involved in clinical care decisions. More and more consumers find
themselves in health plans that use utilization review and other care management techniques to
ensure that care is well-managed and appropriate. Many of these changes have helped reduce the
historic growth in health care costs, improved our ability to measure and assess the quality of
care, and provided consumers with greater access to preventive and other services.

At the same time, as health plans become increasingly active in making coverage, utilization
review, and other clinical care decisions, and develop bureaucratic procedures for making these
decisions, consumers are at increasing risk of benefit delays and/or denials. Mistakes are
inevitable. People will accidentally fall between the cracks. A fair and timely process for
resolving benefits disputes is an essential tool for consumers in assuring their access to promised
benefits.

An effective internal appeal mechanism is an opportunity for health plans and consumers to
correct miscommunications, and to identify and resolve conflicts before they become problems --
an early warning system. Health plans can also use their internal appeals mechanisms as a source
of feedback, for example to fine tune the implementation of utilization review protocol; a
protocol that gives rise to multiple complaints may indicate a need for modification or improved
communication with providers. Internal appeal mechanisms can also be an important gauge of
consumer satisfaction, and a means of improving that satisfaction. The internal appeal process
should be an integral component of the health plan's broader quality assurance program.

But internal appeals processes are not enough. They give the appearance of bias toward health
plans, and in some cases that bias is real. Only independent reviewers can provide the guarantee
of fairness that is necessary to rebuild consumers' trust in the system. Further, no internal review
system will be perfect, there will be errors. All Americans must have access to external review.

A key goal of an independent, external appeals process is to ensure that mistakes are corrected
quickly, before harm occurs. When these decisions are made by independent decision makers,
we gain both the fact and appearance of fairness. Independent review serves additional important
functions. As a matter of basic fairness, an independent review processes will assure that
consumers get the benefits they have been promised.

External appeals can help improve health outcomes. The existence of an external appeals
mechanism provides an additional incentive for the health plan to ensure that its internal appeal
mechanism identifies and corrects problems as early as possible. The availability of an appeal
helps assure that the health plan efficiently manages care and provides needed services without
underutilization or inadequate access. And external appeals also help improve quality of care by
providing another avenue for enrollees to obtain promised care in a timely fashion.

The existence of an external appeals process can also serve as a "check and balance" on the
incentives of a prepayment system. We also believe strongly that an external appeals process can
help reduce litigation by preventing injuries and increasing consumer trust in their health plans.

We believe the availability of an independent voice on matters of coverage and access will go a
long way toward restoring consumers' confidence in the health care system. The vast majority of
health care consumers will never use an external appeals process. But they will have greater trust
in their providers and plans if they know that, in the event of an error, they have access to an
independent determination of their rights.
* *

The Administration is strongly committed to improving consumer protections and the quality of
health care, including a system of internal review, independent external appeals, and some means
of enforcing those protections. In the remainder of my testimony this morning, I would like to
describe to you the steps the President has taken to bring appropriate internal and external appeal
resolution procedures to consumers in Federal health programs, describe some of the dispute
resolution procedures that currently exist in Medicare and in the States (for commercial
business), and to echo the President's call for Congressional action to extend these protections to
all health care consumers nation-wide.

II. The Growing Consensus That Internal Review and Independent External Review
Are Fundamental to Protecting Consumers and Improving the Quality of Care

President's Advisory Commission on Quality and Consumer Protection in the Health Care
Industry -- Consumer Bill of Rights and Responsibilities

On March 26, 1997, President Clinton appointed the Advisory Commission on Consumer
Protection and Quality in the Health Care Industry (the Commission), to advise him "on changes
occurring in the health care system and recommend measures as may be necessary to promote
and assure health care quality and value, and protect consumers and workers in the health care
system." As part of his charge to the Commission, the President asked the Commission to
deliver to him a Consumer Bill of Rights by the fall of 1997.

The Commission was composed of 34 members representing widely divergent views, including
consumers, business, labor, physicians, nurses, other providers, health plans, state and local
governments, and health care quality experts. On November 20, the Commission presented to
the President a ground-breaking report, setting out a "Consumer Bill of Rights and
Responsibilities."

A key component of that Bill of Rights is the Commission's recommendation that "[a]ll
consumers have the right to a fair and efficient process for resolving differences with their health
plans, health care providers, and the institutions that serve them, including a rigorous system of
internal review and an independent system of external review."

According to the Commission, "[f]air and efficient procedures for resolving consumer
complaints about their health care serve many purposes. First and foremost, enhanced internal
and external review processes will assist consumers in obtaining access to appropriate services in
a timely fashion, thus maximizing the likelihood of positive health outcomes. Second, they can
be used to bridge communication gaps between consumers and their health plans and providers,
and to provide useful information to all parties regarding effective treatment and consumer
needs. Third, the opportunity for consumers to be heard by people whose decisions significantly
touch their lives evidences respect for the dignity of consumers as individuals and engenders
their respect for the integrity of the institutions that serve them."

Despite their very different views and constituencies, these leaders agreed that all health care
consumers should have this kind of basic protection, and that these protections would help
promote improvements to the system and quality more generally.

Presidential Leadership

The President strongly endorsed the Commission's report, and has already taken steps to make
the Bill of Rights real for the 85 million Americans in federally sponsored health plans. On
February 20, 1998, the President issued an Executive Memorandum directing the five executive
agencies responsible for overseeing health care programs to use their existing administrative and
regulatory authority to come into substantial compliance with the Commission's
recommendations by no later than December 31, 1999. This includes compliance with the
Commission's recommendations on internal and external appeal procedures. In fact, all
executive agencies responsible for health programs have reported to the President that Federal
health programs already substantially comply with this recommendation. Through agency
action, that compliance will be further improved by the end of next year.

With Federal programs taking this leadership role, the President also called for Federal
legislation putting a Consumer Bill of Rights in place for enrollees in private health plans, and he
has continued to call upon the Congress to pass legislation to make these rights real for all
Americans.

Need for Congressional Action

Although the President has already taken many steps to bring basic protections -- including
internal and external mechanisms to resolve disputes with health plans -- to all health care
consumers, he cannot do this job alone. Congress must do its part. Some businesses are
implementing consumer protections voluntarily. For example, some employers contract with an
external dispute resolution entity to resolve questions about the availability of experimental
procedures, and to resolve other particularly difficult coverage issues. But we cannot expect that
all employers will voluntarily provide such appeals for these and other benefits and coverage
disputes.

States have passed many of the protections recommended by the Commission into law. At least
fourteen States have enacted a requirement that commercial health plan enrollees have access to
an independent dispute resolution mechanism. The scope and nature of this appeal varies across
these States, as I will explain in more detail below. In addition, most States' Department of
Insurance will take complaints from privately insured consumers.

But States have very limited jurisdiction over the 125 million Americans in plans covered under
the Employee Retirement Income Security Act. The only way to ensure that all health plans
serving all Americans provide the protections recommended by the Quality Commission is to
enact bipartisan federal legislation.

III. External Appeals Mechanisms Are Effective and Efficient: Criteria, and Examples
from Medicare and States' Regulation of Insurance

Mr. Chairman, in your letter of invitation you specifically asked me to address those areas that
should be addressed in any grievance and appeals process, including an independent, external
appeal. You also asked for an overview of the grievance and appeals available in the Medicare
Program. In fact, the Medicare Program provides a good illustration of how an external appeals
process can be comprehensive, fair, and cost effective.

Criteria

We agree with the Commission, that a "properly structured complaint resolution process should
promote the resolution of consumer concerns as well as support and enhance the overall goal of
improving the quality of health care." A variety of mechanisms could provide the necessary
protections and support quality improvement. States and others can devise the appeals
mechanisms that best meet their needs, within broad -- but important -- Federal standards.

We support the criteria for internal and external review stated by the Commission in its
discussion of this recommendation. We restate them here in more operational terms:

Any external review process should meet the following criteria:

The process must be truly independent and impartial, both in fact and in appearance.
This means the review must be de novo, based on the evidence, and conducted by
appropriately credentialed individuals who have no conflict of interest.

The process must be easy to understand and easy to use.

The process must be timely, and must include an expedited process for emergencies and
urgent care.

There must be no undue restrictions on access -- narrow definitions of the types of
disputes that are eligible for external review are unfair, and will not help improve the
quality of care or consumer confidence. Where dollar thresholds are used, there should
be an exception where the consumer's life or health is in jeopardy.

Enrollees must have good information about the grievance and appeals processes
available to them.

The process must be affordable.

There are many mechanisms that meet these criteria today. We know from experience that an
appeals process can meet these criteria and still be effective and inexpensive. The Medicare
appeals process is one example, but there are others.

Examples from Medicare

As we reported to the Vice President on February 19, 1998, the Medicare program is in
substantial compliance with the Commission's Bill of Rights, including the recommendation for
internal and external appeal procedures.

Medicare beneficiaries who are dissatisfied with any decision about services or payment have the
right to appeal, and beneficiaries are regularly reminded of their appeal rights. These rights are
discussed in the Medicare Handbook. They are listed on every Explanation of Medicare Benefits
and Medicare Summary Notice sent to beneficiaries. They are included on notices to patients
when they are admitted to hospitals. And they are described on every denial made by a Medicare
managed care plan. There is more we can do to inform Medicare beneficiaries of their appeal
rights. For example, Medicare is in the process of making its information on appeals and
grievance procedures more easy for enrollees to understand.

The Medicare program includes internal appeal procedures and an independent, external appeals
process, for both fee-for-service and managed care enrollees. In fee-for-service, the beneficiary
first can obtain a reconsideration of the initial denial by the carrier or fiscal intermediary that
processed the claim. For physician and Part B services worth over $100, the beneficiary may
also request a second level of internal review, a Carrier Fair Hearing. If the beneficiary is not
fully satisfied, he or she has the right to a hearing before an Administrative Law Judge (if the
claim is over $100 for Part A and over $500 for Part B). That decision may be appealed to the
Department Appeals Council, and ultimately, Federal District Court (if the amount in dispute is
at least $1000). In addition, Peer Review Organizations, responsible for overseeing quality of
care, can also intervene quickly in the event of imminent discharge from a hospital.

In managed care, the beneficiary's first level of appeal is to the health plan. Health plans are
required to establish and operate their own systems for handling appeals and grievances
internally. If the plan's reconsideration of its initial decision is not wholly favorable to the
beneficiary, the beneficiary's appeal is automatically forwarded for external review to HCFA's
contractor, the Center for Health Dispute Resolution (CHDR). There is no minimum dollar
threshold. All disputes about benefits or coverage are heard (not just those involving "medical
necessity"). For Medicare beneficiaries who remain dissatisfied, further external review is
available before an Administrative Law Judge (the minimum amount in dispute required is
$100), the Department Appeals Council, and ultimately, Federal District Court (if the amount in
dispute is at least $1000).

Last year, HCFA published final regulations guaranteeing appeal rights to Medicare managed
care beneficiaries that are among the strongest available in the nation. HCFA established an
expedited process for resolving both internal and external reviews of claims arising out of
managed care. Under expedited review, such questions as the imminent cancellation of a
treatment or the need to quickly see a specialist must be resolved by the plan as quickly as
possible but in no event later than 72 hours for internal reviews (a schedule generally
recommended by the Commission), or within 10 days for external review. This process permits
individuals to receive a quick answer to questions about getting urgently needed care.

This hearing is timely because Medicare is currently considering options for further
improvements in its appeals process. Among the options under consideration are improvements
to the rules that address continuation of care during the managed care appeal process, notification
of beneficiaries when services are reduced or terminated, and tighter response time standards for
appeals involving situations that are not urgent. HCFA believes that the turnaround time for
non-urgent appeals should be reduced from the current 60 days, and welcomes comments from
your committee and other interested parties on what the standards should be.

As I noted above, any Medicare managed care beneficiary appeal that is not resolved to the
enrollee's complete satisfaction is automatically forwarded for external review to the CHDR. In
1996, the direct costs of this external review were roughly 4 cents per member per month.
Despite the fact that any coverage or benefits dispute can be appealed, and despite the absence of
a monetary threshold, the appeals rate is very low, between one and two appeals per thousand
enrollees per year. During 1995 and 1996, CHDR upheld the plans' determination in 64% of
appeals, overturned the plans' decisions in 28% of appeals, and partially upheld and partially
overturned the plan's decision in 4% of appeals. Medicare is proof that an effective external
appeals program is neither burdensome nor costly.

We do not have comparable cost figure for appeals from the fee-for-service program. There are a
number of reasons for this, including the fact that these cases are heard by the Administrative
Law Judges who also hear all Social Security cases. There is a need for improvement in the ALJ
process. HCFA is performing an analysis of the ALJ process and will be in discussions with
officials of the Social Security Administration about future steps that may be taken. SSA has
dedicated 30 ALJs to Medicare cases, and is trying to reduce the time for decisions in these
cases.
Ex

Examples from States' Regulation of Insurance

Today, at least 14 States have enacted a requirement that external appeals be available to
consumers. In most of these States, the process applies to all types of health plans or to any plan
that engages in "utilization review." In two States the process applies only to questions
regarding experimental and investigational therapies (California and Ohio), and in one State it
applies only to disputes regarding substance abuse and mental health services (Vermont). Under
a grant from the Kaiser Family Foundation, the Georgetown University Institute for Health Care
Research and Policy is studying the external appeals processes in these States. Although they are
still in the process of learning the details of these external appeals processes, they have shared
some of their preliminary information with us. Because the work is ongoing, I do not have
complete information about each State's appeals process. But I can give you a few examples of
how the States' external appeals already implement some of the criteria I listed, above.

The process must be truly independent and impartial, both in fact and in appearance.

In most of the States that have enacted an external appeals mechanism, the review entity is
chosen by the State -- that is, neither the plan nor the enrollee appoint the panel. When neither
interested party appoints the review panel, both parties can be sure that the decision will be fair.

There are many ways to accomplish this goal. Review entities can be assigned to disputes by the
State on a rotating basis (this is done in Connecticut, Rhode Island, New Jersey, and Texas). The
State itself can run the review panel using State employees (Florida), or the State can appoint
independent reviewers who are not State employees (Michigan). The State can use an RFP
process to develop a pool of review entities (Rhode Island, Connecticut, New Jersey, and Texas).
Where States use an RFP process to develop a pool of independent review entities, they often
contract with peer review organizations.

The process must be timely, and must include an expedited process for emergencies

The internal and external process must ensure that the review occurs in time frames that match
the medical exigencies of the case. In some cases, for example, post-service review of a claim
denial, a decision within a few weeks could be timely. In other cases, such as a pre-service
denial in emergency circumstances, a decision must be made in within a few hours. Physician
certification that the case should be expedited should automatically trigger expedited review at
least through the internal appeals, so that the enrollee can get to the external appeal quickly.
Once the complaint has reached a neutral external decision-maker, it may be fair to allow that
decision-maker to determine whether expedited review is required.

States use a range of approaches to appeals deadlines. States' time lines for an initial internal
appeal (the health plan's reconsideration of a denial) where there is no emergency appear to
range from 5 business days to 60 days, with many states at 30 days. Deadlines in those states
that provide for expedited internal review in emergencies range from 24 hours to 4 days, with
many states at 72 hours.

The ranges are similar for external review. Standard review deadlines range from 10 days to 120
days, with many States requiring review within 30 days. Several States require expedited
external reviews, which are generally triggered by either a treating physician's statement that an
emergency exists, or a finding by the external review entity that a delay would jeopardize an
individual's health. Expedited review deadlines range from 24 hours to 7 days.

There must be no undue restrictions on access -- narrow definitions of the types of disputes that
are eligible for external review are unfair, and will not help improve the quality of care or
consumer confidence

The scope of disputes eligible for external review ranges significantly across the States. Several
allow any type of grievance not satisfied by the plan to proceed to an independent review panel.
In other States, only disputes involving medical necessity are eligible for external review
(although many of these States also include coverage decisions that involve medical judgements
in their review process). And, as noted above, two States limit these appeals to questions
involving experimental therapies, and another to disputes involving mental health or substance
abuse benefits.

While this research is not yet complete, to date the Institute has uncovered no States that require
a monetary threshold for external review. Two States require a nominal filing fee, (which can be
reduced or waived where hardship would result). One State requires the enrollee to pay half of
the cost of the appeal; the other half is paid by the plan. The other States have found that filing
fees are not necessary to weed out frivolous cases.

The Institute's review of the costs of these appeals is ongoing. We understand that, to date, the
costs in most States have been less than $500 per case, and that, as in Medicare, very few
enrollees appeal to an external entity. In a few States, the process has not been in place long
enough to produce reliable cost data.

The State regulators interviewed as part of this research believe that the existence of an external
appeal process has improved the plans' internal grievance mechanisms, and is rebuilding
consumer confidence in the health care system. Also, again according to the State regulators,
health plans view these appeals procedures fair.

There is no perfect model for an external appeals process. While the processes described here
work effectively for the Medicare Program and for these States, other approaches may be just as
fair and effective. I outlined the criteria that an external appeal mechanisms should meet. Such
a process should be part of a package of consumer protections that the Congress and
Administration make available to all health care consumers.

IV. Conclusions: Make the Bill of Rights Real for All Health Care Consumers

According to the Commission, "[h]ow consumer complaints are addressed has a significant
impact on the quality of health services provided and on the satisfaction of consumers with the
individuals and institutions that provide them."

Although you asked me to focus my testimony on appeals procedures, I want to re-emphasize
that the Administration strongly believes that Federal legislation is needed to make all the
protections recommended by the Commission available to all health care consumers. A number
of consumer protection bills have been proposed this session, from both Houses of Congress and
both parties. They take different approaches, and include different protections. Some bills
would not provide the full array of protections recommended in the Commission's Bill of Rights,
while others would go further. We are encouraged by the level of interest in this issue and the
number of innovative proposals that have been put forward. The President has made it clear that
he wants to work with Congress to enact consumer protection legislation before Congress
adjourns for the year.